Q: I withdrew some of my superannuation due to COVID as part of the government early release access. What action can I take now to start regrowing my balance?
Our thoughts: If you utilised access to super as part of the government early release measures, and that has helped you manage through a rough year with reduced income, that’s okay. Sometimes we need to get through the now, before we can focus on the future.
While looking after now is, of course, extremely important, it is worth keeping in mind that your super savings are intended to be for ‘future you’. Making sure you are also going to be okay when you get to your weekend is worth taking a moment to think about too.
Although everyone’s circumstances are different, and there are lots of variables, such as the amount you withdrew, when you did so, market changes since then, your day of the week (age) and some other factors, let’s consider an example.
Rashmi is on her Tuesday (in her 20’s) and accessed $10,000 of her super as her work in hospitality slowed and then stopped altogether. Rashmi has recently begun working again, and although she still has a long time to continue adding to her superannuation account before she hits her weekend, she can still take action to replace the money she withdrew.
Rashmi could consider depositing a small amount into her smartMonday account each week.
For instance, if you wanted to replace the $10,000 over five years the easiest starting point is to divide the $10,000 by the number of weeks in five years. This works out be about $38 a week – and is a great place to begin. But there are a few other things to think about.
Superannuation grows in two ways – the deposits we make as well as the earnings our money makes for us. We also pay tax on the deposits we make^. Our investments go up and down in value over time. To compensate for the time Rashmi’s $10,000 was not in her fund earning investment returns, Rashmi could also consider a few other things.
- Contributing more than the $38 per week
- Contributing for longer than the five years
- Considering the ways she contributes
- Speaking to a smartCoach to work out a different strategy.
^Superannuation receives different tax treatment depending on how we make a deposit. Salary sacrifice contributions (taken out of the pay before you pay tax or receive your salary) are taxed at 15% - subject to limits. Superannuation paid out of your after-tax money (money from your bank account) doesn’t attract tax when you make a deposit, as you have already paid tax on that money.
Need help? Please contact a smartCoach on 1300 262 241